Just recently the Apple iPhone topped more than 100,000 apps. It was just two years ago, on October 17th, that Steve Jobs announced that Apple was going to allow third-party developers to build apps for the iPhone. They pushed out a software developer kit back in February 2008. Today, for many people the apps are as, if not more, important than the phone itself. Meanwhile a whole industry of developers has been created all chasing the dream of coming up with a killer app. The Apple developers are part of a closed ecosystem — their applications, unless ported, only run on the iPhone and Apple has control over what goes into the iPhone app store and over revenue sharing pricing.

Meanwhile Google has successfully launched its Android phones following a completely different strategy. It’s making the operating system freely available and encouraging phone makers to install it and app developers to write for it. Verizon just released its Droid phone with its iDon’t ad campaign. The Droid doesn’t have as many apps as the iPhone yet but here’s the deal: since the Android operating system can run on many phones who it could become the Windows — oh no, not that again — of the mobile phone space, with lots of hardware working with it. That could encourage lots of developers to write for it. And all those folks with iPhone apps can think about porting them over to other operating systems like Android. And this isn’t necessarily the end of the apps orgy — people are creating apps for the Blackberry and other software platforms may still come in.

Some of these apps are already payment related and the opportunities for payments-related innovation with these apps is enormous. We’re already getting the obvious ones — apps that make the iPhone a payment acceptance device, apps for mobile banking, apps to track your money, and so forth. Transactions allows you to use the iPhone to accept credit card transactions anywhere. Others like PlanetAuthorize are doing the same. Of course mobile online banking providers like Yodlee quickly developed apps for the iPhone. Many of these apps are interesting and some are likely to be pretty important. But most of what we’ve heard about so far sounds like either in-the-box thinking — apps that take the low hanging fruit of the obvious — or not-quite-ready for prime time like some of the location based search apps that are being hyped. The key thing is that with all these developers, all around the world, thinking about apps, it is probable that someone — perhaps many someone’s — will come up with a killer app that will revolutionize payments. Maybe someone in the payments industry, maybe you, or maybe someone who is a complete outsider.

What is clear is that those who have been thinking of a linear path going from mobile phone, to mobile phone plus NFC, to mobile phone is payment device at point of sale are likely to get some rude awakenings. Maybe that will still happen. But the real payments action on the mobile phone is going to come in the next few years from the developers of creative applications that use all the great features the mobile phone has now — rapidly improving guis with big clear screens, increasingly faster broadband connections, slicker operating systems, and locational-based capabilities. A small developer in San Jose, or Bose, or Austin, or Hanoi, or Sofia, or wherever isn’t going to be thinking big thoughts about hooking merchants up with NFC. They are going to be thinking about what great stuff can they do now and make some money. I was wish I knew what that was. But the limits of my knowledge are that I know from everything we’ve seen from Invisible Engines that incredible ideas with come from out of nowhere and revolutionize industries including, most likely, parts of the payments industry.

This does not surprise me. Recommendations from friends, and even friends of friends, carry a ton more weight than random searches done on the web. Sure, lots of sites have rankings, but unless there are tons of ratings for a particular product, there’s still a lack of confidence in whether what you are about to buy will meet the expectations set by the advertising hype or web site product description and photo. Compare that to a search done via a social network, within a trusted network of friends, and voila, you have instantly lowered the barriers to purchase and simultaneously increased the degrees of confidence in that product or service. Research consistently shows that trust among friends for product decisions trumps company advertising and even celebrity advertising by big margins. eMarketer’s report shows that while still infinitesimal, searchers on social networks tend to repeat visit sites more frequently than those done on the web.

So, the big question is whether people will, over time, be more likely to use the social networks as a starting point for doing random searches for products or services than the web. The answer is, probably not anytime soon. But, there is still every reason to think that these networks will be used to informally ask friends for referrals in much the same way that people have been doing offline forever. The fact is that it’s happening already. We’ve all seen the post asking for the best restaurant in Denver or whether the new box office smash is really worth seeing. I polled my own network in the Fall when I needed advice on birthday gifts for my niece and nephew. But more often than not, searching the web (or Amazon.com, frankly) is more efficient since I don’t have to wait for people to check in and reply, nor risk having no one post anything at all. Plus, there are more search results to choose from.

The more interesting question, though, is how social networks will monetize what will likely be a growing use of these trusted networks. The (ad) model which has rung the cash register for Google and Yahoo hasn’t really for Facebook. MySpace and LinkedIn have done a better job of monetizing their traffic via advertising (MySpace) and charging for access to the network (LinkedIn). Cracking this code will have as much to do with understanding what drives people to these networks in the first instance, and then how or if a search-based feature is something that can complement both the member experience as well as the bottom line.

What will be interesting to watch is how Bloomberg, known for its careful eye on the bottom line, turns an asset which is reportedly losing $800k a week into something that contributes to the Bloomberg profit-making machine. Given that they are two very different businesses, today, it is unlikely that many redundant costs can be eliminated right off the bat, although most certainly there will be cuts soon to stop the bleeding. One very strong possibility is that Bloomberg doesn’t have any grand ambition to rebuild the brand back to its billion-dollar status since it makes money in other places and views Business Week as a low cost channel to a primo executive audience. It might decide that making money will come from serving up an integrated package of content to an executive audience – financial news, business news, analysis and “flashy” editorial commentary, along with conferences and the other things that Business Week has experience doing and that has revenue potential. In that scenario, the B/BW combo sort of becomes a Dow Jones competitor with an added twist – an installed base of customers that today already rings a $6 billion cash register.

In any case, how the business model emerges could be instructive to anyone in the media biz. What’s clear is that the old ways of doing business in the media world are as out of place as the teletype machines that once delivered the news.

How to start: No one has to be convinced that social networks are important channels, but no one really feels confident that they know how to engage with them. Big brands across the board fear what Leala coined the “dark side” of social networks: not so much what happens when people get on social networks and say bad stuff about your brand but what happens when “rouge” employees get on and do dumb stuff that reflects poorly on the brand (e.g. Dominos and the recent incident re food handling that made its way around You Tube). The consensus is that these media aren’t going away, so having a proactive strategy around mobilizing social media and organizational accountability and ownership is essential. There was also a lot of discussion that “starting” isn’t always a brand’s decision. We did a quick search on FB and Twitter of a few of the big brands in the room without a “formal” strategy around social, only to discover lots of defacto fan pages, and tweets about them. And someone reminded us that the Coca Cola FB fan page was actually started by a couple of kids - and not by Coca Cola, and had thousands of fans before Coca Cola devised a strategy to essentially support and empower the existing “owners” and fans of the site rather than build a new presence. Kevin also made a great point about the merits of starting small and focused in order to drive critical mass. He reminded us that Facebook’s launch strategy was one college campus at a time, building success and creating demand before turning on the next site.

Who’s in control, organizationally. There were some interesting questions about who should own social network initiatives and whether that should be outsourced or done internally. This was a very interesting discussion, especially since there were a fair number of agency peeps in the audience. I think that we ended up agreeing that letting tactics drive strategy is a big mistake (although everyone said that was sort of the practice today), and disconnecting social from business strategy is fatal. Consensus is that business strategy should drive social strategy which in turns drives tactical execution, and that social strategy is an emerging discipline that will live outside creative media shops. The group also agreed on the importance of having one touchpoint in the organization who can act as social coordinator, gatekeeper, enabler and integrator who can help to create a consistent and efficient social presence (e.g. one fan page that does a bunch of things rather than a zillion that fragment and dilute the brand’s social presence).

Search versus social. A very senior executive from a media enterprise asked whether social will replace search. Interesting discussion. I think that where we ended up is that they’re different animals. Search is a demand fulfillment activity… I want a treadmill and I need to know where to buy one, and Social is a demand generator… I see that my friend saw a cool movie and I might like to now go and see it too. So, at least until social commerce becomes more of a dominant activity on networks with applications that enable those sorts of search and find buying opportunities, they are both needed.

Monetizing social. That was actually the topic that I was asked to comment about, and it ended up being a great discussion both among the panelists and around the room. I started by giving a few ways now that people are using social to ring the cash register. Meetup.com uses online channels to actually drive offline (usually sponsored) “meet ups” around just about anything that you can imagine from social networks (~16,300 meet up groups across the country) to Scottish terriers (~390 meet up groups). Estee Lauder just launched a totally clever campaign designed to bring people into their cosmetic counters for a free makeover and profile photo shot for their FB/MySpace profile page. There is one catch, the photo has the EL logos in the backdrop, but three huge big payoffs: great looking profile pic, make-up sales (who won’t buy at least one of the makeup items), and viral promotion (people who check out new made-over profile pics will be motivated to run right out to their local department store for a makeover and photo session of their own). Leala showed us the YouTube campaign around Carl Jrs. New Portabella mushroom burger which is designed to drive sales by demonstrating what a great and affordable product it is and engagement around a UG contest for new commercial content around people enjoying the burger. But while all of these are intended to drive sales, none of them provide an online, in network mechanism for directly doing so.

I talked about some of the emerging, still fledgling concepts that are out there designed to more directly tie commerce to social (Zappo’s alpha version of Plurchase which when tried failed to notify my friend that I was online and shopping –big whoops, Whiseo which is an online group gifting application, Fondalo which is a “mob buying” wish list aggregator of items that they then source deals for and getta! which is still in stealth mode, but is a potentially path-breaking social commerce app linked to large online properties and social networks). I think that we agreed that this is where the future of commerce will end up on social networks, but it is still a green field.

Had the next session not been lining up outside the door to take over our spot, I think we could have talked for 90 more minutes. Social is clearly on the minds of executives who see it as an efficient way to extend the reach of their brand, and who are now trying to make it work harder as an enabler of revenue and profit. 2009 was the year of experimenting on social networks, 2010 is the year to make it actually ring the register.

Unfortunately, an awful lot of the proposals that are being floated in Washington these days focus on making it harder for people to borrow—sometimes indirectly as in the case of the CARD Act that was passed by making it more expensive for card issuers to lend money, and sometimes directly as in the case of the proposed CFPA Act of 2009 which was developed by law professors who believe quite earnestly that a lot of consumers just shouldn’t be borrowing money. Josh Wright and I have shown under plausible assumptions that the CFPA would raise interest rates at least 1.6 percentage points and kill more than 4 percent of new jobs as a result of denying credit to the new small businesses that account for the preponderance of new jobs in the economy. See The Effect of the CFPA Act of 2009 on Consumer Credit. We argue that the CFPA Act would harm the economy in the long run but more importantly it would impose yet another lead weight on an economy struggling to recover.

I’d like to propose a moratorium on any and all legislation that’s likely to reduce the supply of credit to consumers and especially small businesses. We should consider any and all proposals after the economy recovers. For now we should focus on government initiatives that will help reopen the credit lines that consumers and small businesses depend on.

Now’s not the time to kill credit.

Some members of the Committee kept referring to the things the Act seeks to restrict as anti-competitive practices. That of course is not true or at least highly debatable. The federal antitrust regulators have never challenged interchange fees. These fees were found lawful by a federal appeals court; although the merchants are taking another run at them in the courts, they have a long way to go with an unpromising legal theory. Although the Wal-Mart settlement required the unbundling of debit and credit cards, the federal regulators have never challenged the Honor-All-Card rule; even the Brussels regulators found the Honor-All-Card rule lawful. To date, there have been no federal challenges to rules that limit the ability of merchants to surcharge for the use of credit cards.

I would hope before considering enacting this legislation, the Committee will demand solid evidence that consumers will benefit—I believe both economic theory and the weight of empirical evidence suggests strongly that consumers will get the short end of the stick. I also hope that the Committee looks carefully at what happened in Australia and Spain where efforts to force interchange fees down harmed consumers. Most of all I hope the Congress thinks carefully about how further restrictions on the lending industry—of which credit cards are a significant part—will affect the availability of credit and the pace of recovery.

You might think that you have just discovered a note in a bottle from a shipwrecked Internet entrepreneur circa 1998. Or that you have just woken Rip van Winkle like after a decade. But, in fact you have just more or less discovered what must have been Twitter’s power point deck to T. Rowe Price and other investors who gave them $100 million and a valuation of $1 billion.

Analysts tend to describe Twitter as a social network and suggest that it is competing with Facebook. I don’t really see that since Twitter is a broadcast technology with little social networking to it. But it does have enough similarities in its business models that we might want to think of Twitter as being an extension of the Friendster-to-Facebook evolution. People thought Friendster was killer when it came out. Then it was outshone by MySpace which of course was the killer social networking community. Until of course it wasn’t because Facebook has been growing more quickly and people act (wrongly I think) like MySpace is dead meat. And now I’ve seen several comments that Twitter is going to prevent Facebook from having a monopoly and Facebook must be saying woe is me because its entreaties to buy the new kid on the block failed. Gee, do you think it might be possible that someone could come up with a shiny new toy that’s even spiffier than Twitter in a couple of years? It sure seems that this part of the Internet space doesn’t have very serious barriers to entry. Consumers seem about as fickle with their social networking and such activity as junior high school girls. Maybe Facebook has staying power but it remains to be seen.

Then there’s the money problem. It really does seem to be déjà vu all over again with entrepreneurs grabbing eyeballs without really figuring out whether the method they’ve used to attract those eyeballs lend themselves to making money.The social networks may eventually figure this out but for now they are trying to persuade advertisers to insert themselves in places where the community really doesn’t want them to be. As my colleague Karen Webster points out, advertising on social networks is sometimes like having a salesperson join your dinner with friends, see her latest paper, The Five Forces of Social Networking. You might think that investors would want to see proof that the last umpteen sites like Twitter have some way of making money before throwing money at them.

Perhaps my negativity here results from the fact that having used Twitter now for a couple of months I don’t see the value. And I know lots of people who really get a lot of value out of Facebook but few who tell me how much they are getting out of Twitter. But in fact I think it is time to remind ourselves of what we learned from the dot.com crash and later history.

First, getting share or lots of eyeballs is no guarantee that an Internet business will ever actually make money.

Second, whether a site can make money really depends as much on how the site is designed and how it can be used to make money as it does on the number of eyeballs coming to the site.

Third, entry barriers really matter. Eyeballs can move quickly on the Internet. Unless a venture has a way to make people sticky to its site or otherwise make it difficult for someone else to come along and attract those eyeballs the venture’s business is about as secure as the hula hoop was.

So what’s the cold water? The Financial Times today has a great discussion in “Yahoo rethinks web content charges policy.” Yahoo dropped charges on its US Fantasy Football site and is now rethinking of charging for real-time quotes on Yahoo Finance. Their decision is based on the basic two-sided market tradeoff for media: a higher price for viewing content reduces the number of eyeballs that can be sold to advertisers. The right balance comes roughly speaking where the additional revenue from charging just offsets the loss of revenue from reduced ad sales (ignoring costs). What Yahoo found was that subscription revenue was too small to justify the loss of audience short-term and more importantly long-term.

But publishers shouldn’t give up on charging as Yahoo itself points out. Its rivals.com site charges for great content and allegedly because charging keeps the riffraff out, which the other users appreciate.

The big question going forward is whether it is possible to move from the current equilibrium on the web where almost all content is provided for free and supported (if at all) by online advertising revenue to a new equilibrium in which much content is charged for and there’s revenue coming in from both sides of the market—viewers and advertisers. Moving between price structure equilibria is tough but not impossible. Remember that the 19th century magazine industry was in an equilibrium in which subscribers paid all the freight to one in which advertisers contributed much of the revenue in almost the blink of an eye. The precipitous decline in online advertising revenue has made it possible that online media could move to a paid model: if most sites can’t survive on online advertising then most would rather switch to subscription rather than die. The problem is that unless most do this simultaneously none can since price-sensitive consumers will avoid the subscription sites.

What should an online publisher do then?

Lesson 1: Recognize that there’s a good chance that you are probably going to be living on online advertising revenue, that you can’t dictate online ad prices because the supply of content on the web is almost infinitely expandable, and that while prices for eyeballs aren’t going to zero there’s an awful lot of downward pressure on them. That means making sure you have a business model that works in this environment: you’ll need low cost methods of getting eyeballs. The days of hiring big staff to generate content are in the past for many parts of the media world.

Lesson 2: If you don’t want to be solely dependent on online advertising revenues you have two ways to go. First, identify situations where people need certain kinds of content and don’t have (and aren’t likely to get) free sources for it. Second, figure out ways to sell complementary products on your site. The social networking sites have already figured that out by necessity.

Lesson 3: Be creative on lead generation. Advertisers will pay a premium to generate incremental sales. The problem with most advertising historically has been that it takes the sledge hammer approach to this problem. Most advertising is irrelevant to most people most of the time. Behaviorally targeted advertising and identifying supernodes on social networks are two methods being worked on. My guess is that there will be more. Web technologies provide all sorts of possibilities, most surely unexplored, for better matching consumers who want things and businesses that want to sell them things.

That’s the future in my view.

It may well be that the shock of slump ad revenues and the prospect of bankruptcy may enable the media business to jump from a free-content equilibrium to a paid content equilibrium. Short of this shock, that change is hard because no single web property can easily make the move unless the other ones do as well. But the crisis may force enough sites to sing the paid content tune to reach a new harmonious equilibrium. This wouldn’t be the first time for equilibria jumping. As Schmalensee and I describe in Catalyst Code the 19th century magazine industry made most of its income from paid subscriptions. One or two large media properties slashed prices and sold advertising and that was enough to force everyone to change. Going in the other direction is very tough though because it requires taking a hit on advertising revenue while risking losing subscribers to other free properties.

But there’s nothing like the asteroid-like strike of the financial crisis to persuade media properties to either go the way of the dinosaurs or to evolve.

As I was reading this, I wondered if the rationale wasn’t even more simple than that. Maybe there just isn’t any more available time that people are willing to spend on the web. Time spent doing anything is about making trade offs of one thing for another. For a while, time spent on-line was traded off at the expense of TV, traditional media, and for some, even sleep. But maybe, in spite of the oodles of stuff to do on the web, we’ve reached our equilibrium point and maybe 12 hours is about the optimal weekly threshold for US adults. Think about yourself. Do you spend 2 hours a day aimlessly tooling around the web? If you could spend 3 hours would you? I would bet that you don’t .. and wouldn’t.

Perhaps the more interesting stat that was not discussed is the tradeoffs people are making with the time that they do spend on the web. Given the increase in time spent on social networks like Facebook and MySpace, and the social needs that these networks satisfy for people, my guess is that the trade off they’re making is spending less time on perezhilton.com or CNN. com. The pendulum will likely shift again, more content available primarily off line today (e.g. tv programming) moves on line. Until then, maybe we’re all just a little maxed out.

Glancing at one or two of the comments to this article - there are others who share this view. What do you think?